Boulder, CO – By Robert Egeland, Founder of Oxygen Mortgage
Although some may not agree, there are still opportunities to refinance, and ultimately, anyone with a mortgage should consider it.
An excellent time to re-finance is negotiating a new rate (minimum 0.75%) as soon as a drop in interest rates occurs. Most mortgage professionals advise this since the overall savings exceed the refinance costs.
Mortgage rates have risen considerably in 2022, shrinking the number of borrowers who could potentially benefit from refinancing. Nonetheless, some scenarios do exist for homeowners to benefit from.
When should I refinance?
Industry specialists predict a continued rise in interest rates throughout 2022. However, the Federal Reserve will likely act to offset inflation by supporting home buyers.
Although not as obvious currently, refinancing makes sense for countless borrowers. Several factors determine the logic of this step, for instance, your financial situation, the remaining term on your mortgage and your type of loan.
Let’s discuss a few examples of borrowers who could consider refinancing before the window of opportunity closes:
- Your Adjustable-rate mortgage (ARM) is resetting
When interest rates head downward, the ARM can be your ally. In a time such as we’re currently experiencing, the rates are increasing rapidly and are expected to continue rising, meaning your repayment will also increase.
An ARM moves synchronously with the overall interest rate. Hence, every time the FED increases its target rate, adjustable-rate mortgages follow suit. The central bank foresees Fed hikes after each meeting this year, meaning your interest rate and repayments could significantly rise after the fixed-rate stage.
If you “refi” to a fixed rate, you avoid the fluctuating ARM and reduce future chances of paying even more in an unpredictable market. Also, since mortgage rates increased sharply this year, they are still historically low. So, locking in a rate now makes sense.
- Lower your interest rate if at all possible
This is a straightforward step. If your current interest rate is fixed at a higher rate than the market average, you’d be smart to discuss refinancing with your lender now.
Black Knight recently reported that 1.34 million borrowers could benefit from refinancing at a 5% fixed rate over 30 years. Most borrowers in this category fixed their mortgage interest rate before 2004. Still, if you haven’t refinanced recently, the opportunity could disappear soon.
- Cash out your home equity
Although the unprecedented home price increase of the past two years makes property expensive, it did attract considerable homeowner equity.
Generally, benefiting from your accumulated equity is possible through cash-out refinance. This process means replacing your loan with another while getting paid out the difference. Keep in mind that most lenders prefer keeping 20% of equity as default protection.
Here’s how you calculate your total equity. Subtract your loan balance from the current value of your home. For instance, with a home worth $300,000 and the balance of your home loan is $200,000, you have $100,000 equity. Lenders will assist you with comparisons on similar recent sales. This step allows you to use the cash in equity in whichever way you decide, such as paying off debts or purchasing a second property.
- Remove your Mortgage Insurance Premium (MIP) or Private Mortgage Insurance (PMI)
MIP runs for the full loan period if you can’t put down 10% on an FHA loan. However, once you have 20% equity with a credit score above 620, you could refinance to a standard mortgage and discontinue your MIP.
The typical PMI disappears automatically once you reach 22% home equity, which you can also request to cancel at 20% equity.
- What’s the bottom line?
Since mortgage rates already grew rapidly this year and possibly continue, the time to plan a refinance is now.
Regardless of which refinance type suits you, the best way to save money on your mortgage is to do it quickly.
One thing you should not do in this climate is to ignore the situation. Don’t hesitate to make an appointment with your lender and discuss the possibilities. Oxygen Mortgage is a new mortgage company that is poised to help you navigate questions and become your go-to source. They offer advice and direct help for real estate agents, buyers, and sellers. Contact them at info@oxygenmortgage.net or check them out on Facebook.
